Module 6

The Business Organization

Course Intended Learning Outcomes

Explore the most appropriate form of ownership for

a business and examine how they are formed and
operates
 Module 5: TOPICS
Business Ownership Types of
Business Ownership
Sole Proprietorship
Partnership
Corporations
 Business Entities/Legal Structures

– 1. Sole proprietorships
– 2. General partnerships
– 3. Limited partnerships
– 4. Limited liability partnerships
– 5. Professional corporations
– 6. S corporations
– 7. C corporations
– 8. Limited Liability Company
 Business Entities/Legal Structures

1. Sole proprietorships
the most common form of business organization.
It's easy to form and offers complete managerial
control to the owner. However, the owner is also
personally liable for all financial obligations of the
business.
 Business Entities/Legal Structures

2. General partnerships
two or more people who agree to share in the profits or losses
of a business. A primary advantage is that the partnership does
not bear the tax burden of profits or the benefit of losses-profits
or losses are "passed through" to partners to report on their
individual income tax returns. A primary disadvantage is liability-
each partner is personally liable for the financial obligations of
the business.
 Business Entities/Legal Structures

3. Corporation
a legal entity that is created to conduct business. The corporation
becomes an entity-separate from those who founded it-that handles
the responsibilities of the organization. Like a person, the corporation
can be taxed and can be held legally liable for its actions. The
corporation can also make a profit. The key benefit of corporate
status is the avoidance of personal liability. The primary disadvantage
is the cost to form a corporation and the extensive record-keeping
that's required
 Business Entities/Legal Structures

4. Limited liability
gaining in popularity because it allows owners to take advantage of
the benefits of both the corporation and partnership forms of
business. The advantages of this business format are that profits and
losses can be passed through to owners without taxation of the
business itself while owners are shielded from personal liability.
partnerships
 Business Entities/Legal Structures

5. Professional corporations
professional service corporation are those corporate
entities for which many corporation statutes make
special provision, regulating the use of the corporate
form by licensed professionals such as attorneys,
architects, engineers, public accountants and
physicians.
 Business Entities/Legal Structures

6. S corporations
also known as an S subchapter, refers to a type of
corporation that meets specific Internal Revenue Code
requirements. The requirements give a corporation
with 100 shareholders or less the benefit of
incorporation while being taxed as a partnership. The
corporation may pass income directly to shareholders
and avoid double taxation.
 Business Entities/Legal Structures

7. C corporations
A C corporation (or C-corp) is a legal structure for a
corporation in which the owners, or shareholders, are
taxed separately from the entity. C corporations, the
most prevalent of corporations, are also subject to
corporate income taxation. The taxing of profits from
the business is at both corporate and personal levels,
creating a double taxation situation.
 Business Entities/Legal Structures

8. Limited Liability Company

arose from business owners' desire to adopt a
business structure permitting them to operate like a
traditional partnership. Their goal was to distribute
income to the partners (who reported it on their
individual income tax returns) but also to protect
themselves from personal liability for the business's
debts, as with the corporate business form.
 Factors to Consider When Choosing a
Business Entity

– According to Entrepreneur Magazine’s Ameen Khwaja “Of all the

choices [a business owner] make(s) when starting a business, one
of the most important is the type of legal structure you select for
your company. Not only will this decision have an impact on how
much you pay in taxes, it will affect the amount of paperwork your
business is required to do, the personal liability you face and your
ability to raise money.”
 Factors to Consider When Choosing a
Business Entity

– A. Ownership and Control

– B.    Liability and Financial Risk
– C.    Business Formation Costs
– D.    Taxation
– E.    Capitalization
– F.    Transferability and Liquidity